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Author: Mr. Shannon Bangle (sbangle@mail.utexas.edu)
School: University of Texas School of Law
Course: Contracts
Year: Spring 1996
Professor: Mark P. Gergen
Book: Contracts: Cases & Comments, 6th Edition, by Dawson
III. Obligation under contracts with open terms
A.Consideration redux: mutuality, Dawson 293-308
Davis v. General Foods, 295 (Compare to Martin, 228)
Facts: P claimed D used her recipe and did not pay her for it.
Ct. says - no promise
or K because D reserved all rights. A court might imply an obligation
from silence, but no obligation when one party says no. In
Martin it was unconscionable for D to benefit w/out paying P.
In this case however the D explicitly reserved all rights and thus no
restitution claim. FYI- Once a trade secret is exposed, it is
available for use by all and is not considered anyone's "property".
Nat Nal Service Stations, Inc. v. Wolf, 295 (Stat. o' Frauds case)
Facts:D promised P rebate on gas if purchased through them.
Ct. says: This case
is outside the SOF b/c it could have been terminated within a year.
Therefore the K is enforceable although not in writing.
Obering v. Swain-Roach Lumber Co., 298
*Contingent Ks: Once contingency has ocurred, both parties are bound.
Facts: P (Swain) had a K with D (Obering). P was going to buy a tract of land and then sell it to D for $8,000 but reserve the timber rights for four years. P bought the land but D refused to then purchase it from P. Lower Ct. ordered spec. perf.
Issue: Does the fact that a promise is conditional upon a future event invalidate the agreement for lack of mutuality?
Holding: No. Judgment affirmed.
(i) Contingent contracts not enforceable by either party prior to the occurrence of the contingency. However, once contingency occurs, both parties equally bound.
(ii) D was bound when P bought land.
Even though D was not bound before P bought land, this did not invalidate
K for lack of mutuality.
Wood v. Lucy, Lady Duff-Gordon, 300
*Promise to use reasonable efforts is implied. Now in UCC 2-306(2).
Facts: Exclusive agreement btwn. P and D for D's endorsement of clothing and D would get 1/2 profits. D endorsed other clothing and kept profits w/out telling P.
Issue: Where P did not specifically promise to use reasonable efforts to promote D's goods, and D's compensation was to come from such promotion, is there a valid K?
Holding: Yes, judgment reversed.
(i) A promise to use reasonable efforts is fairly implied.
(ii) If D was to profit, it was to come from P's profits, thus P had to perform.
(iii) UCC s2-306(2)
imposes the implied duty used by the court. Now called "best efforts".
Petoleum Refractionating Corp. v. Kendrick Oil Co.,304
*Alternative promises, if all have consideration, make a K valid.
Facts: D promised to buy a certain grade and amount of oil from P. K stated that P could cancel the K if he stopped producing that grade of oil and gave 5 days notice. D cancelled the order and P had to sell the oil at a lesser price. P is suing for their loss.
Issue: Is there lack of consideration b/c of P's contractual right to quit making the grade of oil required by D?
Holding: No, judgment reversed.
(i) Benefit to promisor or detriment to promisee is enough for consideration. All alternatives open to P must have consideration for the K to be valid.
(ii) P's only alternative is to discontinue production of the oil. This would be giving up a legal right and that is sufficient consideration to validate the K.
(iii) Restatement of K, 2nd s. 77 (pg. 306)- Illusory and Alternative Promises
-Gergen thinks
it is flawed b/c it says that any alternative is consideration.
Gerfein v. Werbelovsky, 306
Facts: P(buyer) ordered glass from D to be shipped w/in 3 months and P had a right to cancel before shipment. D refused to ship glass.
Issue: Is there consideration to enforce the K?
Holding: Yes
(i)The D had a right
to compel the P to take and pay for the goods once he had shipped them,
thus there is consideration.
SUMMARY FOR SECTION
Solving the Mutuality Problem (Use when one party has power to cancel K)
1. Imply limitation of that power: i.e. Wood, b/c P must use reasonable efforts.
2. Alternative Consideration: i.e. Petroleum Refractionating Corp.
3. Declare any impediment on that power to be consideration: i.e. Gerfein
4. Abolish requirement of consideration for options.
5. Alternative theories
- Restitution, Reliance, Unilateral K
B. Regulating performance under open terms, 308-312
Feld v. Henry S. Levy & Sons, Inc., 308
*Seller must act in good faith to satisfy output K's. UCC 2-306.
Facts: D had a K w/ P to supply all bread crumbs it produced w/ a 6 mth. notice required to cancel. P refused to pay 7 cents/ton instead of 6. D dismantled the crumb machines and sold them, thus breaking K. D claims no liability b/c K only called for it to sell the crumbs that it made.
Issue: Does seller under an output K have a good faith duty to produce for the K term even if no production level was specified?
Holding: Yes, affirmed.
(i) Seller must act in good faith to satisy the K. UCC 2-306
(a)Not good faith if D shuts down when profits are less than expected.
(b)Good faith if production is stopped b/c it imperils insolvency.
(c)Good faith if
D shuts down for more than trivial losses. (Question of fact)
Fort Wayne Corrugated Paper Co. v. Anchor Hocking Glass Corp., 311
Facts: Anchor had a K with Fort to buy all of the paper it needed. Anchor later halted production of glass and no longer needed the paper.
(i) Fort has no cause of action b/c Anchor broke the K independent of the K itself.
(ii)Anchor had valid
business reasons for breaking the K and acted in good faith.
Gergen says:
- The law is fuzzy b/c it can say what is good and bad faith at the extremes but not what is in between.
- Good Faith: We want
one party to act to protect another until the cost outweighs the benefit.
i.e. in Feld the bakery can reduce production only as long as
it saves more than the buyer loses.
C. The rights of an employee
and a franchisee when a contract is terminable at will.
1. A general duty of
good faith, 312-320
Corenswet, Inc. v. Amana Refrigeration, Inc., 312
Facts: P (Corenswet) was a franchise distributor of Amana. The K was terminable by either party "at any time for any reason" w/ten days notice. Amana terminated the franchise. P seeks to enjoin termination b/c it was arbitrary and capricious.
Issue: Was the termination permissible?
Holding: Yes
(i) The termination is permissible under the K and Iowa's commercial code.
(ii) "Good Faith" requirement of UCC is overridden by UCC 2-309(2) which allows termination at any time by either party.
(iii) Policy/Prudential-
avoid litigation and forced relationships when one wants out.
Gergen says:
-Franchisees have a strong good faith argument under UCC
(i) 1-203 Every K has a duty of good faith
(ii) 2-103(1)(b) For merchants good faith is reasonable commercial standards of fair dealing.
(iii) 1-102(3) Duty
of good faith is not disclaimable (but parties can difine what good
faith means)
2.
Discharges in violation of public policy, 321-327
Sheets v. Teddy's Frosted Foods , Inc.,321
Facts:P was fired for trying to get his employer to obey food quality standards set out by law.
Issue: May an employee hired for an indefinite term be fired for pointing out possible criminal violations by the employer.? Holding: No
(i) Public policy places limits on rt. of employer to fire at will i.e. can't fire for pointing out criminal violations of employer.
(ii) Public policy claims that are valid for action against a firing:
(a) Statutes that prohibit firing an employee for filing a workers comp claim.
(b) An employer that fires an employee for refusal to commit perjury.
(c) TX:
Only allows action when employee is fired for not commiting a crime
or for refusing to do what the law forbids. Argument must be grounded
in statute and judge decides whether it is sufficient for a claim.
3. Reliance and oral
representations, 275-284
Forrer v. Sears, Roebuck & Co., 275
Facts:P sold his farm at a loss on the promise of permanent employment by D. P was hired and a few months later fired. P brings action on a claim of promissory estoppel.
Issue:Does detriment taken on by P to accept perm. employment from D constitute consideration additional to services of employment that makes the employee unfireable w/out cause? Holding: No.
(i) D fulfilled promise by hiring P.
(ii) Offer of permanent employment is offer to provide employment terminable at will.
(iii) For an action,
P must prove benefit to D in addition to his own detriment. i.e. if
the P had contributed capital to the enterprise.
Hunter v. Hayes, 278
Facts: P was promised a job by D so she quit her job to work for D, but D failed to employ P.
Issue: Is their an action? Holding: Yes
(i) P proved detrimental reliance on D's promise using s. 90 and promissory estoppel.
(ii) P wins b/c she
was never employed by D; thus D never fulfilled promise. (That is the
distingiushing factor as compared to Forrer.)
Stearms v. Emery-Waterhouse Co., 278
Facts: P was given oral K by D to work at $85k/yr for 5 yrs. 2 yrs. later he was cut to $68K/yr at a different position. 6 mths. later P was fired.
Issue: May an employee avoid the Statute of Frauds b/c of his detrimental reliance on an employer's oral promise of continued employment? Holding: No.
(i) If P can prove D had an intent to commit fraud, P may avoid the SoF.
(ii) The ct. must focus on the employer's conduct, not the employee's reliance. Here ther was no fraudulent conduct by D.
(iii) Ct. outlines
exceptions to SoF 1.Restitution 2.Part performance 3.Reliance 4.Tort
Goodman v. Dicker, 281
Facts: P hired salesmen and recieved orders for radios b/c of D's promise that a radio franchise would be granted and radios delivered. Franchise was not granted.
Issue:Was P's reliance on D's representations sufficient to estopp D from denying a K?
Holding: Yes. Affirmed judgment for P's expenses but reversed for lost profits.
(i) P wins b/c D did not keep promise to even let P start and thus could have never fired at will.
Gergen says: Premature termination cases- P almost always wins notwithstanding right to fire at will. P's get reliance damages
- In franchises you must have time to recoup your investment before you can be terminated at will (Missouri doctrine,313).
- Franchisee has a better claim than an employee.
- Could sue in equittable estoppel b/c of misrepresentation of facts
- Could sue for
neg. misrep. (fraud) Must show at time of promise, D had no intent of
keeping promise. In some States only liable if you do that job for a
living.
4. Rights grounded
on a manual, 340-349
McDonald v. Mobil Coal Producing, Inc., 340
Facts: P was forced to resign from D's Co. after rumors of P sexually harassing another employee. P claimed D breached its K as set forth in employee handbook.
Issue: Does employee handbook that has employment guidelines, and also says that employment is terminable at will by either party, modify an at-will employment?
Holding: Yes
(i) The disclaimer must be conspicious and it was not.
(ii) Objective standard
is used and all manifestations by D suggested an intent to make legally
binding promises.
Psutka v. Michigan Alkali Co., 346
Facts: P was denied recovery of death benefits from the co. their son worked at. The benefits were laid out in the company pension and death benefit plan. The plan also later said it was voluntary and conferred no legal rights on any employee.
Issue: Should P get benefits? Holding: Yes
(i) Promise came first in the manual and disclaimer later. When two clauses are in conflict accept the first and side with P where ambiguous.
(ii) Consideration
is found for D's promise to pay death benefits b/c of attraction of
better workers and lower turnover rate.
Kari v. General Motors Corp., 347
Facts: P brought suit to recover seperation pay allegedly guaranteed by D's handbook.
Issue: Is there a K? Holding: No
(i) D wins b/c disclaimer is clear and conspicious. No intent to be bound is obvious.
Gergen says:
- Kari was law based.
- McDonald
was common man based.
Pine River State Bank v. Mettille, 348
(i) When new or changed
conditions are made in a handbook this may become contractual and is
accepted by the employee if he stays on the job. By staying, while
free to leave, the employee has given the necessary acceptance to make
a K.
Jackson v. Action for Boston Community Dev., Inc., 348
(i) Retention of the right to change the employee manual by D made any offer in it illusory.
(ii) No negotiation
over manual terms and no term of employment was in the manual.
Thus no implied K based on manual's terms and conduct of both parties.
IV. Offer and acceptance
A. Form of an offer (349-352)
Moulton v. Kershaw 349
Facts:D, a salt dealer, wrote to P that they could offer full car loads (80-95 barrels) of salt at 85 cents/barrel. P sent a wire the next day and ordered 2,000 barrels. The following day the D withdrew their offer. P sued for $800 dams. and D’s demurrer to the complaint was refused.
Issue: Does a letter stating that certain goods are available for sale at a specified price constitute an offer?
Holding: No, reversed.
(i) D’s letter does not indicate a quantity and thus would be difficult to interpret.
-Today, UCC 2-201 would be used to fill in the terms. Under 2-201 K is not enforcable beyond quantity shown in writing.
(ii) The letter was simply a notification to salt dealers that D had salt available for order.
(iii)Cannot look to P’s
writing to fill in quantity for a stat. o’ frauds defense.
B. Some basic principles of contract formation (370-377)
Cobaugh v. Klick-Lewis, Inc. 370
Facts: P made a hole in one. D had a new car displayed w/a sign that said to win it you had to make a hole in one. D refused to give it up b/c the car was for a tournament two days before.
Issue: Was there a valid offer?
Holding: Yes, affirmed.
(i) Promoter’s offer remains open until it is withdrawn and any person who acts upon it binds the promoter to perform his promise.
(ii) There is consideration b/c by performing the act P did something he was not legally required to do and in addition D received a benefit from good PR from the sign.
(iii) Ct. uses objective standard. P or a reas. person would think the offer was valid, therefore it is.
(iv) General rule:Can’t
accept an offer after specified time in offer has expired. If no spec.
time specified use “reasonable” time standard. (Rstmt. 2d Sec. 40)
Allied Steel & Conveyors, Inc. v. Ford Motor Co. 375
Facts: D (Allied) got a purchase order from Ford that also had an indemnity clause in it. D did not accept the K as suggested in the PO but began performance anyway. D’s employee was injured by P’s employee and D’s employee sued P who counterclaimed D through the indemnity clause. D claimed that it didn’t formally accept the K as suggested, thus no K, thus no indemnity.
Issue: When an offeree fails to comply with the suggested method of acceptance, but instead begins performance, is a K formed?
Holding: Yes, affirmed.
(i) Intent to accept a K is manifested by beginning performance with knowledge of offeror and in accordance with material terms of K
(ii) General rule:Acceptance
must be by a means authorized by the offeror.
C. Terminating an offer
and protecting part performance under unilateral contracts (377-396)
Davis v. Jacoby 377
Facts: Pseeks spec. performance to get the inheritence of a close friend. P’s contend that the decedent promised to will them all of their property if they come to help them. The will did not reflect this but the evidence did.
Issue: Was there a bilateral K that will justify spec. perf.?
Holding: Yes, reversed.
(i) When difficult to determine whether unilateral or bilateral, the presumption is for bilateral K.
(ii) There was an offer by decedent and P accepted. Thus there is a bilateral K.
(iii) Unilateral K- requires actual performance to bind offeror.
Bilateral K - acceptance of offer or performance binds offeror.
(iv) Death revokes any unilateral offer. Jordan v. Dobbins 383
-Gergen thinks that there
probably wasn’t an offer.
Petterson v. Pattberg 384
Facts: P claims a loss of $780. D accepted a mortgage from P and paid him cash. D offered to deduct $780 if P paid off the principal before May 31. Before that date, P went to pay cash for the balance but before he could bive the money, D told him he had sold the mortgage.
Issue: May an offer of a unilateral K be revoked at any time prior to performance, even if the offeror knows that the offeree intends to perform?
Holding: Yes, reversed.
(i)The offer of a unilateral K may be revoked at any time prior to performance of the act required as acceptance.
(ii) Modern rule: When there is substantial performance, unilateral offer can’t be revoked by offeror.
Rstmt. 2d Sec. 45 (390)
(iii) Also, w/out condition in K negating such need, offeree must know of revocation for offer to be void.
Brackenbury v. Hodgkin 391
Facts: D promised to give her daughter and son in law the farm when she died if they would move to her and take care of her. D later wanted them to leave so she deeded the land to her son and he evicted P’s. P’s want the land reconveyed to D, D’s son enjoined, and a ruling that there is a trust in favor of P’s.
Issue: Where D offers to convey property when an act is performed, is a K formed when the offeree begins performance of the act?
Holding: Yes, affirmed.
(i) Where the offer calls for an act as acceptance and the offeree makes a substantial beginning of performance, a K is formed.
(ii) UCC 2-206: bilateral
K can be accepted by performance instead of a promise to perform.
D. The effect of a promise
to keep an offer open: options (396-401 & UCC 2-205)
Thomason v. Bescher 398
Facts: D gave an option under seal to P to buy a tract of timber if he tendered $6,000 w/in 60 days. P, a few days later, said he would take the tract and would pay the money the following week. D withdrew the option.
Issue: Does and option under seal, given without consideration, become enforcable upon notification of acceptance by the optionee?
Holding: Yes, affirmed.
(i) At common law, instruments under seal do not require consideration. (Seals only enforced if covering options)
(ii) Acceptance of the
option under seal created a bilateral K, which is legally and equitably
enforceable.
Marsh v. Lott (400)
(i) Court enforced the option even though only 25 cents was given for the option and says any money is enough for consideration on options.
(ii) Both this case and
Thomason use different theories to enforce options. They are
accepting formalities (seal and nominal consideration) to enforce options.
Smith v. Wheeler (401)
(i) Even thought the written consideration of $1 was not payed, the ct. says the promise to pay was binding. Thus, there is consideration that makes the option enforceable.
(ii) Rstmt 2d Sec. 87 (Option
Contract) pg. 401- reflected by all 3 cases above.
-Gergen says UCC 2-205 solves the problem
a. Offer must be in writing to be binding, need not have small consideration.
b. Option can’t be more than three months
c. Works only against
merchants.
E. Protecting reliance
on offers (402-414)
James Baird Co. v. Gimbel Bros. Inc. 402 (Old rule)
Facts: D offered linoleum for a price to 28 contractors. D realized they made a mistake and telegraphed all 28 to correct the price. P sued D for breach of K.
Issue: Will reliance act as substitute for consideration to make an offer irrevocable?
Holding: No, affirmed.
(i) D revoked offer before P accepted it.
(ii) D offer anticipated P’s acceptance, not that P would use it to make a bid in reliance on the offer.
(iii) This case reflects the old rule where reliance will not substitute for consideration.
(iv) Under UCC 2-205 this
offer would be binding. (Gergen)
Drennan v. Star Paving Co. 405 (Modern view)
Facts: P sued for breach of K. D was awarded a K to build a school. D used P’s bid to pave the school w/in his bid for the whole K. When P was awarded the K he went to tell D who refused to perform and wanted more money.
Issue: Where the general relied on the sub’s bid and can’t cover for the same money, does this reliance substitute for consideration.
Holding: Yes, affirmed.
(i) Sec. 90 of Rstmt. promissory estoppel. used to enforce offer of sub.
(ii) P’s reliance was reasonable and forseeable to D, and P relied to his detriment.
(iii) Reliance does not
necessarily imply a promise. It is however a reason to imply an
offer as being irrevocable.
- REVIEW 2/27 NOTES FOR
FULL EXPLANATION OF SECTION
1. Reliance on negotiations
(414-421)
Hoffman v. Red Owl Stores, Inc. 414
Facts: D promised P a grocery store franchise in the fall for $18K. P sold his bakery and bought a small grocery store to get experience. P later sold the small store at a loss of $500, at the behest of D. D kept raising the price to get a franchise and P finally broke off negotiations.
Issue: Where P relied to his detriment on the promise of D, and that detrimental reliance was forseeable by D, can P recover damages?
Holding: Yes, affirmed.
(i) Rstmt. Sec. 90 (promissory estoppel) applies.
(ii) There was no offer, only negotiations. This case implies that parties must bargain in good faith; when they don’t and there is detrimental reliance, promissory estoppel will apply and dams. will be awarded to prevent injustice.
- Gergen: compares
Embro, Goodman v. Dicker, Wheeler v. White, Drennan
F. Acceptance
1. Effect of rejection (422-425)
Livingstone v. Evans 422
Facts:D wrote P and offered to sell land for $1800. P wired D and offered $1600 cash or if not accepted to send lowest cash price. D wired “Cannot reduce price.” P immediately wrote back acceptin the offer. In the interim, D had sold the property to someone else.
Issues: A. Did a counteroffer terminate the original offer? B. Did D’s telegram reinstate the original offer?
Holding: Yes, Yes, specific performance granted.
(i) A counteroffer rejects an offer and terminates it.
(ii) The telegram acted as renewal of the original offer.
(iii) If we applied the Embry rule we would have combined all communication and asked what a reasonable person would have thought. Here, the court taked each communication separately and tries to find offer and acceptance.
(iv) “Mirror image
rule” -if acceptance varies from offer in any way, it is a counter
offer.
2. Battle of the forms under the UCC (425-435)
Know 2-207 for final,
review 3/5 notes
Idahoe Power Co. v. Westinghouse Electric Corp. 427
Facts: Idahoe is suing West. for dams. under warranty, neg., and strict liability. Idahoe oredered a voltage regulator that caused a fire. West. paid to fix the problem but Idahoe still sued in tort. West. claimed that liability was limited by its terms on the back of its price quote sheet. Dist. ct. granted sum. jud. for West.
Issue:Does a buyer’s purchase order which by its terms supersedes all previous agreements supersede the terms of the seller’s offer even though it does not address the matters dealt with in the seller’s offer?
Holding: No, affirmed.
Gergen Flow
Chart of Idahoe Power
Was purchase order an acceptance?
/ \
If yes. (b/c accepted price and delivery date) If no, then it is a counteroffer(mirror image rule)
\/ 1. Seller can refuse to ship.
\/ 2. If S ships, then K on counteroffer’s terms.
\/
Was acceptance “expressly made conditional” under 2-207(1)?
/ \ If No If Yes
| Go to 2-207(2), seller wins -(No, b/c superseder clause was too vague) -(“Subject to” clause wouldn’t work either, Dorton), must say expressly conditional -See if terms in acceptance become part of the deal 2-207(2) - If additional, run through 2-207(2) - If different, apply Knockout Rule or 2-207(2) |
1. Seller can refuse to ship. 2. If seller ships, then K Go to 2-207(3) to derive terms (those on which the writings of the parties agree and UCC “gap fillers”) |
Roto-Lith, Ltd. v. F.P. Bartlett Co. 431
Facts: Buyer orders emulsion and seller ships w/disclaimer of warranties.
(i) Ct. says the acceptance was expressly conditional
(ii) Ct. says putting in a materially different term automatically makes the acceptance expressly conditional (differs from Idahoe Power b/c that ct. required the use of an expressly conditional phrase)
-this interpretation makes 2-207(2)(b) irrelavent and this is an argument against using it.
- 2-207(1) says terms must be “expressly made cond.”
(iii) Ct. says they
treat the expressly cond. acceptance as a counteroffer (this ignores
the flowchart and 2-207(3)
3. Timing of acceptance
(435-445)
Morrison v. Thoelke 435
Facts:Appelle mailed a letter of acceptance to appellants to sell some land. Before the letter was received appellees called appellants and repudiated the letter. Appellants filed the land papers anyway and sought spec. perf. from the court.
Issue: Does acceptance of an offer become binding when it is mailed?
Holding: Yes, reversed.
(i)Acceptance is effective on dispatch, “mailbox rule”. Adams v. Lindsell
(ii) All other communications (offers, revocations, rejections) are effective upon receipt.
(iii)Exception: if
rejection is dispatched before acceptance whichever arrives first controls.
4. Acceptance by silence
or exercise of dominion (445-452)
H.B. Toms Tree Surgery, Inc. v. Brant 445
Facts:P had been doing landscaping for D. P had submitted an estimate for $10K. However, D kept instructing P’s crew to do a lot of extra work and indicated he would pay for it. The K required any additional work to be separately valued and itemized as extras.
Issue: Where a party requests work additional to that specified in a written K, does an implied agreement arise to pay for the reasonable value of all the labor and materials furnished?
Holding: Yes, affirmed.
(i) General rule is that express K excludes inconsistent implied K obligations, but in this case the parties did not intend to be bound to the express K.
(ii) D realized what was going on and told P to proceed. This created an implied K.
(iii) Rstmt. 2d Sec.
69, pg. 447
Hobbs v. Massasoit Whip Co. 448
Facts:P sent eel skins to D who dept them for several months until they were destroyed. There was no K, but P had sent eel skins to D 4 or 5 times before w/out a K and they had been payed for.
Issue: Did the parties silence constitute acceptance?
Holding: Yes, affirmed
(i)Normally, silence does not constitute acceptance.
(ii) In this case a pattern of dealing (prior business relations and practices) had been established and D therefore had a duty to act when it received the eel skins. D’s silence and retention of the skins for an unreasonable time constitute acceptance.
Standard Casualty Co. v. Boyd 448
(i) No K b/c asking for a response and then silence is not assent.
Ammons v. Wilson & Co. 449
Facts: P sent orders to D a number of times and every time D accepted quickly. This time D did not reply for 12 days and then rejected.
(i) Ct. found D’s
failure to reply w/in a quick time as usual could be viewed as assent.
Austin v. Burge 451
Facts: D got a subscription to a paper from father in law and subsequently paid it twice but said no more. D kept taking it w/out payin and P sued for subscription price.
* P wins b/c even if
D didn’t order the paper he continued to use it, under circs. where
he knew it wasn’t a gratuity, and he thus agreed by implication to
pay for it.
V. Interpretation and the parole evidence rule (457-508)
A. Parol evidence Rule (Rstmnt 213, p.472))
1. A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
2. A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
(a. Completely and exclusive final terms of an agreement)
3. An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integratred agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it has not been integrated.
4. Comment: Whether
a binding agreement is completely or partially integrated, it supersedes
inconsistent terms of prior agreements.
B. Integrated agreements (Rstmnt 209, p.471)
1. An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
2. Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to pplication of the parole evidence rule.
3. Where the parties
reduce an agreement to a writing which in view of its completeness and
specificity reasonably appears to be a complete agreement unless it
is established by other evidence that the writing did not constitute
a final expression.
C. Mitchill v. Lath 457
Facts: D orally promised to remove an icehouse if P bought farm. P bought but D did not move icehouse. The movement was not in the written contract.
Issue: May a ct. enforce an oral agmt. that induced the promisee to enter into a closely related written agreement?
Held: No; reversed.
(i) UCC 2-202: Integrated agreement may not be contradicted by prior agreements or contemporaneous oral agreements. See note 3; certainly included standard..
(ii) The oral agreement
is not allowed b/c the terms would ordinarily and naturally
have been included in the original K and the oral agmt. contradicts
the terms of the written K.
D. Gergen on Relevant evidence for deciding integration
1. Williston; 4 corners; look at face of agreement itself and whether looks complete.
2. Corbin (majority); look at entire facts and background circumstances including evidence of prior agreements.
3. Judge decides whether
completely integrated (Hatley).
E. Interform Co. v. Mitchell 473
1. In deciding complete
integration, subjective standars vs. objective reasonable person standard.
F. Hatley v. Stafford 464
Facts: P leased 52 acres from D. K said D could buy out P for his cost, but no more than $70 an acre. D took possession of property and cut down wheat crop. P said they had orally agreed buyout provision only good for 30-60 days. P wanst $400 an acre, the value of the wheat.
Issue: May evidence of oral agreements be introduced so long as it is not inconsistent with the K and might naturally have been made as a separate agreement?
Held: Yes; affirmed.
(i) For parol evidence to be inconsistent it must contradict an express provision in the K.
(ii) The shorter the
writing the greater the possibility it is not competely integrated.
G. Luria Bros.& Co. v. Pielet Bros. Scrap Iron. 475
Facts: Parties had oral deal over phone. Afterwards confirming memos sent both ways. Neither signed the others memos. Seller later said dealer contingent on his supplier coming through and that was not in either memo.
(i) Evidence inadmissible
under UCC 2-202 b/c the parol evidence was implicitly inconsistent
with the contract. “absence of reasonable harmony”
H. Hayden v. Hoadley 471
(i) Parol evidence not admitted b/c it violated a common implied term, i.e. that work be done w/in reasonable time.
I. Incorporate summary
on 3/18
J. Long Island Trust Co. v. International Inst. 477
Facts: P lent money to Intl. Inst. w/ five guarantors signing. P again lent money to Intl. Inst. and the two Ds claim they only signed after they were told by P that the other co-gurantors would have to sign before their guaranty became effective. The money was not repaid and P brought action against the four who signed the second note. P got SJ and Ps appealed.
Issue: May parol evidence be introduced to establish the existence of the conditional delivery of a signed instrument?
Held: Yes
(i) UCC and C/L recognize defense of conditional delivery, so that if the conditional is not complied with the instrument is unenforceable. UCC 3-305, 3-306.
(ii) M.O.: Parol evidence
not expressly inconsistent and thus is admissible; D.O.: Is expressly
inconsistent, directly contradicts (Luria).
K. Lipsit v. Leonard 484 (To show Fraud)
Facts: P worked for D for 8 years. D orally promised to give P part of the co. if he kept working. No binding promise in writing and P was terminated. P sues for br/K and wants 10% of business value in cash plus reaonable damages.
Issue: May parol evidence be introduced to show fraud relating to a written agreement?
Held: Yes
(i) Parol evidence to show fraud is not barred by the parol evidence rule, even though the rule bars parol evidence concerning br/K.
(ii) In tort P can
only recover out of pocket costs.
L. LaFazia v. Howe 489
Facts: P sued for breach of a promissory note. D counterclaimed P’s misrepresented to induce D to enter into K. D’s bought a sandwich shop from P and lost big time. P had told them it was profitable but included a very detailed set of merger clauses in the K.
Issue: If K clearly says seller makes no warranties or representations, and that the buyer relies on his own judgment, may the buyer later sue the seller for misreps. allegedly made before the K was entered?
Holding: No, affirmed.
(i) Merger and disclaimer clause was so specific that it prevented the claim of fraud.
(ii) Could use a tort claim so jury could determine whether there was reliance.
M. Hoffman v. Chapman 495
Facts:D bought a parcel of land from P. The deed gave D more land than both parties had agreed to. P got a decree reforming the deed to the original agreement.
Issue: Is parol evedence admissible in equity to vary the terms of a written instrument in cases of mutual mistake?
Holding: Yes, affirmed.
(i) Equity is an exception to the PAR when a mistake occurs in the drafting of the instrument. Equity is used to enforce the actual bargain.
(ii) But where the
writing says what the parties intended it to sayl, even though their
agreement was different, reformation to insert omitted terms has been
denied by most decisions. (note 497)
N. Two Reasons to Introduce Parol Evidence
| |
1. To Interpret Ambiguous Stmts. |
2. To Contradict Plain Meaning |
| Testimony of Subjective Understanding |
Yes, Kabil |
No, FDIC v. W.R. Grace 504 |
| Circumstances |
|
Yes, New York Trust Yes, PG&E 501 No, “4 Corners Rule” & Beth Steel |
O. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. 501
Facts: P sought to recover costs to repair dams. caused by D while doing a contracting job for P. P claims the indemnity clause in the K requires payment. D claims the clause applies only to third party dams. Lower Ct. gave judfment for P.
Issue: May a prty offer parol evidenct to show the meaning of terms of a K where the language of the K is susceptible to the interpretation argued for by that party?
Holding: Yes, reversed
(i) Evidence as to the meaning of a term of a K must be admitted if the language of the K is reasonably susceptible to the meaning argued for by the evidence. Language is almost always inexact on its face. (Traynor)
(ii) This holding contrasts
directly w/Posner in FDIC
FDIC v. W.R. Grace504
(i) Posner would bar admission of self-serving statements of subjective understanding.
(ii) Posner would allow other forms of parol evidence besides subjective self-serving.
(iii) Advocates the
4 corners rule.
-UCC 2-202 comment 1: Rejects 4 corners rule by denying that judges can determine meaning without looking at the commercial context and also by rejecting the rule itself b/c the commercial evidence must be used to show that the term is ambiguous. (similar to UCC 2-103 duty of good faith and fair dealing)
-In TX and NY in order
to decide ambiguity the judge may look at all extrinsic evidence except
the party’s subjective view.
Nanakuli Paving (Gergen)
Facts: P is a road construction co. D is an asphalt manufacturer. Practice is P enters K to buy asphalt long before it needs it. K says price is the price on the day of delivery, but practice is that the asphalt co. price protection. D made the K but got bought out by another co. who tries to change the practice.
Issue: How does P argue price protection.
(i) P should try to bring in outside evidence to show trade usage and practice.
(ii) P should us UCC “good faith”- show price protection is normal practice
(iii) P wins using 1-203 (good faith) and 2-103 (reas. fair dealing in trade as evidenced in practice)
(iv) D should argue
4 corners rule
VI. Contract modifications
A. Introduction to the
pre-existing duty rule (286-293)
Levine v. Blumenthal 289
Facts: P is suing for back rent. D made an oral agreement with P to keep paying $175/month even though the K called for an increase to $200/month. D skipped out on th last month’s rent.
Issue:Is an agreement to alter the terms of a lease enforceable if no additional consideration is given?
Holding: No, affirmed.
(i) There was no consideration for the oral agreement, thus it is not legally enforceable.
(ii) The preexisting legal
duty rule does not apply where there is a bona fide dispute that the
parties agree to settle, but there was no such disput in this case.
Gergen: 2 defenses landlord could raise besides consideration.
1. Indefiniteness
- No assent
- Insufficient Formality
2. Statute of Frauds
- 13 months left
in K
Tenant would counterargue to S o F :
1.Reliance (promissory estoppel)
-UCC 2-209 if theK as modified falls under SOF, the modification must be in writing.
2. Part Performance
3. Boone v. Coe:
don’t apply SOF b/c mod. is only for 12 months even though it will
take 13 to perform.
Foakes v. Beer 292
(i) Since this case
cts. have held that a modification for a lease in K requires independent
consideration even if ther has been performance.
Fried v. Fisher 287
(i) Use promissory estoppel to get around consideration requirement.
(ii) Don’t need to
show you relied to your detriment, just a change in position. (Ricketts)
Mahban v. MGM
(i)Suggests two other outs
a. Equitable Estoppel
b. Waiver
(ii) Statutory Outs
a. UCC 2-209 -
Modificaitons need no consideration to be binding. (like iptions 2-205)
B. Policing madifications
through the doctrines of duress, consideration, and good faith. (569-589)
Austin Instrument Co. v. Loral Corp 570
Facts: P is suing for nonpayment of $17,750 and D counterclaims dams of $22,250. P entered into a K with D to produce gears. P bid on 2nd K for P and said that it wanted that entire K plus a price increase that would be retroactive to first K or it would cancel any more gear shipments.
Issue: Is a K modification executed under threat of economic duress enforcable?
Holding: No, reversed.
(i) A K is voidable on the ground of duress when one party is forced to agree to the mod. by means of a wrongful threat precluding the exercise of its free will.
(ii) Rstmt 2d says for duress:
a. Must be an improper threat (b/c not duress to threaten to do what is a legal right to do)
-may be improper if threaten to break K if other party doesn’t modify K
-may be improper b/c the threat makes the outcome disproportional
b. Must be no reasonable alternative
(iii) Duress is alternative
to consideration for avoiding a K modification. (note 2-209 displaces
need for consideration to validate modifications)
Gergen says dams should be
-On 2d K where Loral
overpayed, Austin gets price of lowest bid of competitor and Loral is
entitled to amount overpayed in restitution.
Smithwick v. Whitley 574
(i) May sue in equity
for specific performance when D demands a higher price.
Wolf v. Marlton Corp. 574
(i) Duress is tested, not by the nature of the threats, but rather by the state of mind induced thereby in the victim.
(ii) A legal threat
is still duress if it is malicious (solely intended to injure P).
-Gergen review of improper threats
1. Threat to commit a crime or tort is improper.
2. Threat to breach a K may be improper (Austin)
3. Sometimes threatening rights under a K may be improper (Wolf) but this is overbroad.
a. Gergen says Wolf is wrong about not caring about nature of the threat and only caring about state of mind of the victim.
b. Malice making the threat improper is not really clear in the law.
4. Sometimes exercising
a K right may still violate K b/c of breach of good faith. e.g. Threat
to fire employee if tort claim isn’t dropped.
Alaska Packers Ass’n v. Domenico 577
Facts: P’s hired on for $50-$60 each + 2cents/fish to work for D as fishermen in Alaska. When P’s got to Alaska they refused to work unless they got $100 + 2cents/fish. D’s superintendent had to agree to keep the operation going.
Issue: Does a promise to pay an increased wage for performance of an established contractual duty fail for lack of additional consideration?
Holding: Yes, reversed.
(i) Consent by supervisor to P’s demands was w/out consideration b/c it was based solely upon P’s agmnt. to render the exact services they were already under K to render.
(ii) Party who refuses to perform, and thereby coerces other to promise to pay more for doing what he is legally bound to do, takes unjustifiable adv. No consideration for promise of other party and promise cannot be legally enforced, although party has completed K in reliance on it.
(iii)comm: trend to abolish consid req and enforce modifying promises where promisor has run into
unforeseen
difficulties and extra pay would be fair (See Rstmnt 74, p. 227).
Schwartzreich v. Bauman-Basch, Inc. 583
(i) Parties to K can rescind through mutual assent. They can then make new K in which their mutual promises are consideration for each other.
(ii) Time of rescission (whether moment before or simultaneously as new K) unimportant. Both K’s can take place at same time.
Goebel v. Linn 582
(i) Assented to modification for ice delivery, then complained.
(ii) Waiver arg: Waited too long after acceptance and therefore lost right to complain; there was a reasonable alternative.
(a) Gergen; 4 ways around consideration arg:
-Settlement
-Reliance
-Tear up K, make new one
-Waiver arg.
Brian Constr. & Dev. Co. v. Brighenti 583
Facts:D agreed to do work on P’s construction site. After initial K, it was found further debris would need to be cleared. P agreed to pay more if D would clear, however D later breached secondary agreement.
Issue: Is a new K to do work required by unforeseen circumstances supported by consideration when overall nature of the work was covered by the original K?
Held: Yes; judgment reversed.
(i) When modification puts an additional obligation on the party seeking greater compensation the agreement, supported by consideration, is valid and binding upon both parties.
(ii) Damages:
a. If mod. valid: Cost of completing work - K price as modified + consequential dams.
b. If mod. invalid:
Cost of completing work - Original K price + consequential dams.
Gergen review: Doctrines to Test Validity of Modifications
1. Common Law Consideration
a. Don’t need consideration if there are unanticipated circumstances.
2. 2-209(1)
a. Dispenses with consideration and puts you under test of “good faith”.
3. Duress
a. Need an improper
threat or no reasonable alternative
Study Hypo on 3/29
C. No oral modification
clauses and the concept of waiver
Universal Builders v. Moon Motor Lodge 591
Facts: D orally told P to do extra work on a construction job and said he would pay for it. The original K said that all mods. had to be in writing. A didn’t pay P for the extra work and said there was no writing for extras as required in the original K.
Issue: Can a K specifying modification only in writing be modified orally?
Holding: Yes
(i) Common Law Rule:
can’t bind yourself w/a no oral mod. clause.
Gergen notes
1. 2-209(2) says a no oral mod. clause can’t be modified by an oral promise. (rejects common law)
2. 2-209(4) says an oral mod. can act as a waiver of a no oral mod. clause
3. 2-209(5) says one can retract a waiver unless a material change in position caused by reliance on the waiver.
Comparison of Modification and Waiver
| Modification 1. Requires consideration or substitute(reliance or statute, e.g. 2-209(1) 2. Requires promise and assent |
Waiver 1. No consideration etc. necessary 2.(Can be implied) voluntary and intentional 3.Unilaterally restore its original term 4. Can’t waive a material term |
D. Hard bargaining in settlements
(596-603)
Hackley v. Headley 596
Facts: D refused to pay P the full price they probably owed P. P settled w/D b/c he was in severe financial need. P gave D a signed settlement but claims it was given under duress.
Issue:Can the issue of duress be solely dependent on the financial situation of the aggrieved party?
Holding: No, reversed and remanded.
(i) See issue and holding
Gergen notes: Duress requires
-Headley: Must be a threat to commit unlawful act.
-Austin Instruments: “wrongful act”, duress of goods
-Rstmet 2d K’s:
“improper threat”, bad faith
Vyne v. Glenn
(i) Threat to use garnishment
to force a settlement is duress
E. Accord and satisfaction
(603-611)
Marton Remodeling v. Jensen (603)
Facts: Marton remodeled Jensen’s house and billed him for $6,500 but Jensen would only pay $5,000. Jensen sent the check for $5,000 to Marton with a condition of final settlement written on it if it was endorsed and cashed. Marton wrote “not full payment” on the check and cashed it. A jury awarded Marton the difference, plus $1000 and attorney’s fees.
Issue: May a payee avoid a “paid in full” condition on a check tendered as final payment of a disputed debt by adding the words “not full payment” to the check before cashing it?
Holding: No, reversed.
(i) When there is an unliquidated claim or a bona fide dispute over the amount due, a check with “paid in full” on it will be accord and satisfaction if cashed.
(ii) There is assent
b/c can’t cash the check while reserving rights. Similar to
acceptance by performance Rstmt. Sec. 69.(if you take offered goods
or services you accept their offer)
Gergen- if you don’t
want to accept check, must send it back.
Whittaker
(i) Payment for a disputed
sum can’t be consideration for release of the dispute. (agrees w/
Headley, minority opinion)
School Lines Inc.
(i) Must be a good faith dispute to have consideration
(ii) Tendering a check
with no dispute is not consideration
Executory Accord: before check is cashed what restrictions are on parties’ rights?
(i) Offerer cannot sue on original obligation in the interim.
(ii) If the accord
and satisfaction isn’t performed then offeror can sue on either old
obligation or new obligation.
Gergen: Accord and satisfaction is a way of settling disputes
(i) To pass as a settlement it must be a good faith dispute.
(ii) Has there been
an assent to the settlement.
VII. Remedies
A. Expectation damages
1. Sales of goods--Basic UCC Remedies
(a) Buyer’s remedies
(i) Upon non-delivery (53-60)
-Three basic remedies
1. Sue for specific performance-(only get if good is unique)
2. 2-712 - Gives the buyer the additional cost of covering
3. 2-713(1)
- Gives the buyer the difference between K price and market price.
Hypo: Anticipatory repudiations, what are buyer’s damages?
3 Cases
| #1: B covers upon repudiation and then market price goes down on time of performance. a. Common Law Damages- Difference
btwn. K price and market price at time of performance b. UCC- Difference btwn. K price and cover price 2-712 |
#2: B covers upon repudiation but market price is up at time of performace. Buyer wants higher damages based on time of performance. a. No - b/c buyer can cover
at low price and get windfall b/c of market price at top. b. 2-713 comment 5 - only sue for K minus market to the extent you haven’t covered |
#3: B doesn’t cover on repudiation and market price up at time of performance. a. Common Law - Market price
at time of performance, Reliance Cooperage b. 2-713 - K-Market when “B
learned of breach” + commercially reas. time c. 2-610 Anticipatory Repudiation - Can wait for a commercially reasonable time |
Oloffson 58
(i) UCC 2-610 (a):
You can only await performance for a commercially resonable time.
Under 2-610(b) after a commercially reas. time expires you have to resort
to any remedy for breach.
Cargill 58
(i) Ct. says under
2-713 damages are measured from the time when performance is due, not
when buyer learns of breach.
Gergen review: Buyer’s remedies under UCC when they get imperfect goods.
1. Whether to accept or reject goods
a. If buyer accepts
(i) Sue under 2-714 breach of warranty (dams = value as promised - value as delivered)
b. If buyer rejects (best option)
(ii) Cancel
K and cover and sue for additional cost or sue for K-Market.
(ii) Delivery
of defective goods--perfect tender, cure, and revocation of aceptance,
826-836
Bartus v. Riccardi 832
Facts: D ordered a model A-660 hearing aid from P. P tendered a model A-665 (improved version). P offered to replace with either model and D refused both. P sued for balance of K.
Issue: Does the UCC allow a party who has delivered a model not in exact conformity with the K to recover upon tender of the exact model?
Held: Yes
Gergen:
(i) Buyer’s rights: If buyer unhappy with promised product.
a. Look for guarantee of satisfaction
b. Look for oral representations (Parol evidence rule problem)
c. UCC Provisions:
2-314: Implied warranty of merchantibility
2-315: Implied warranty of fitness for particular purpose
(ii) Buyer’s remedies:
a. 2-601 “Perfect Tender Rule”: Right to reject.
b. 2-711: Buyer’s rights on rejection (cancel, money back, cover, K market, consequential dams).
(iii) Seller’s right to cure:
a. 2-508: Seller’s right to cure
1. Absolute right to cure if delivery date has not passed
2. Seller must have thought the good would have been accepted
3. Seller must tell buyer he will cure and fulfill K exactly (perfect tender)
(iv) 2-606: What counts as acceptance
(v) 2-607: Effect of acceptance
(vi) 2-608: Revocation
of acceptance
Oddo v. GM 835
Facts: electrical fire in car and GM will fix but not replace.
Issue: Is buyer entitled to reject?
Held: Yes
(i) Even if repaired it is substantially impaired (subjective test).
(ii) Nature of the
good determines subjective or objective test or worth.
Fortin v. Ox-bow Marina 835
(i) Buyer can reject
lemon-boat when dealer can’t fix all problems over a period of time.
Oshinsky v. Lorraine Mfg. Co. 826
Facts: P had a K with D to deliver goods in installements to end on Nov. 15. P delivered on Nov. 16 and D refused.
Issue: Does failure to deliver goods by the contractual date of delivery relieve the buyer of its obligation to accept the goods?
Held: Yes
(i) Time was the essence of the K therefore proper rejection.
Gergen:
1. Seller’s remedies
a. Good faith and fair dealing breach to reject goods for trivial nonconformity (2-103(1)(b) Observance of reasonable conduct)
b. 2-508: Thought goods were conforming even though one day late (problem: comment 4 does not allow change of deal). allows delivery w/in reasonable time after due date.
2. Buyer’s remedies
a. Don’t use good-faith to override K specifics (Coronswet)
b. 2-601: Perfect-tender
(b) Seller’s
remedies: Lost profits, 60-65
Neri v. Retail Marine Corp. 60
Facts: P agreed to buy boat from D and down paid $4,250. P broke K and D later sold boat for same price. P sued for deposit and D counter claimed damages for deposit amount.
Issue: May a seller recover lost profits and incidental damages when the buyer repudiates a sales K and the seller then resells for the same price?
Held: Yes
(i) Damages for retailer = 2-708(2), Lost profit + incidental
(ii) Damages for single sale=2-706; K price - resale price + incidental
(iii) Damages if keep good=2-708(1); K price - market price
(iv) Whether seller
completes unfinished product upon repudiation: 2-704(2); (Luten)
2. Foreseeability,
65-73
Hadley v. Baxendale 65
Facts: D (shipper) did no realize repair of shaft was crucial to operation of mill. Late delivery of shaft resulted in mill closing.
Issue: Is P entitled to lost profits?
Held: No.
(i) Shipper is liable for consequential damages resulting from nondelivery if:
a. Resulting damages would naturally occur from br/K
b. Resulting dams. were objectively in parties’ minds when contracted.
(ii) D is liable if special facts were communicated by P.
(iii) Hadley test:
tries to limit scope of promisor’s liability. UCC’s “reason to
know of” vs. foreseeability.
Kerr Steamship Co. v. Radio Corp. of America 68
Facts: D being sued for consequential dams. resulting from late delivery of telegram containing important business instructions which were encoded and therefore unknown to D.
Held: D cannot be liable.
(i) Policy argument: P better able to control priority delivery. Otherwise, D would have to give priority to all telegrams.
(ii) Distributive argument: If D held liable, will have to raise rates generally and every customer will bear cost.
(iii) Doctrinal: p
68; Doctrine of foreseeability tantamount to rule of property.
Victoria Laundry Ltd. v. Newman Industries Ltd. 69
Facts: D late in delivery of boiler to P (laundry co.)
(i) D liable for dams. resulting from lost use b/c it is foreseeable that the laundry co. would lose volume.
(ii) As UCC case today,
buyer goes to 2-715 and rule of mitigation/cover.
Other arguments:
(i) Tacit Agreement test: tacit agmt. to be bound for more than ordinary damages.
(ii) Restatement 2nd; p.72; no “tacit agreement” test; see note on part 3.
(iii) 2-715, comment 2, says no “tacit agreement” test.
(iv) Instead seller
may argue buyer could have covered (2-713,712 no test of foreseeability),
inspected.
B. Restitution to the
breaching promisor, 109-132
-Most common case is
when a party breaches but wants payment for the work it has done.
Pinches v. Swedish Evangelical Lutheran Church 115
Facts: P built a church for D’s. The product unintentionally deviated from the plans. D took possession and used it anyway. D refused to pay unless price to rebuild the deviant parts was deducted.
Issue:If builder,in good faith, deviates from K must he be liable for reconstruction cost if building is reasonably adaptable to use and reconstruction would be an unreasonable hardship?
Holding: No, affirmed.
(ii) Builder, to sue in K law must show
a. Substantial performance
b. Not willful (contrary to Plante and other authorities)
1. Subsantial Performance
Plante v. Jacobs 837
Facts:P built a house for D but did not finish all of the details and misplaced a wall. P was awarded a lien on the house. D claims P can’t recover b/c no substantial performance.
Issue: When builder w/out detailed construction plans performed basic purpose of K has he substantially performed.
Holding: Yes, affirmed.
(i)Substantial Performance
doesn’t require compliance w/every detail unless those details made
essence of the K.
Measure of damages
1. If homeowner: cost of fixing the problem. Similar to Peevyhouse if cost of fixing is disproportionate to diminution in value.
2. Alternative: diminution
in value
Suit in Restitution: when you can’t show substantial performance and thus no K suit.
1. If willful breach some cts. allow recovery and some don’t
2. Damages: Benefit
conferred on D - dams. to D (construction: Value of work done - cost
of completion)
Study Hypos on 4/12
C. Repudiation
Cherwell-Ralli, Inc. v. Rytman Grain Co. 859
Facts: P delivered product to D on installment K. D fell behind in payments. P eventually stopped deliveries b/c D stopped payment on a check to cover past shipmets. Trial Ct. found for P.
Issue: May a buyer suspend performance of a K for lack of adequete assurances from the seller when the buyer’s own non-payment is the basis for its insecurity?
Holding: No, affirmed.
(i) 2-612(3) Seller argues it can cancel b/c breach of one installment substantially impaired the value of the whole.
(ii) 2-610(b) To cancel K must show repudiation of K by buyer. Possibly implied, see comment 2.
(iii) Rumors aren’t insufficient grounds for insecurity.
(iv) Possible for waiver
argument
D. Agreed remedies
1. Liquidated damages 2-718
-Substantive test
Pacheco v. Scoblionko 133
Issue: Can parents get back prepayment? Yes, b/c it was a penalty b/c it overcompensated camp.
Arguments for camp:
1. Lost volume 2. Increasing cost for necessities 3. Incidental damages
City of Rye v. Public Service 134
Issue: Can City keep $100K bond as contractual dams. when theamount bears no relationship to actual pecuniary damages?
Holding: No
(i) Rstmt 356 pg. 139
(ii) It is a penalty, and thus not upheld.
(iii) Penalty can be
upheld if statute provides for it.
2. Limitation of Remedies 2-719
Fretwell v. Protection Alarm Co. 145
Issue: May a company limit its liability for breach of K to a token dollar amount.
Holding: Yes
(i) “liquidated damages clause” was really attempt to limit liability and is valid as such b/c K established the duty and its lawful provisions can limit the liability.
(ii) D was not an insurer
and doesn’t violate pub. policy to limit liability.
F. Conditions
Merritt Hill Vineyards v. Windy Heights Vineyard
(i) Failure to meat conditions
does not entitle P to damages, only recovery of deposit.
Doctorman v. Schroeder 761
Facts: Land K with time of the essence conditioned upon payment of $1500 on Dec. 19th. Seller agreed to extend time and set payment time on the hour of 2:30. Buyer was 30 minutes late.
Issue: Can Buyer get spec. performance?
Holding: No
(i) This is a condition and not a K, therefore buyer cannot argue substantial performance.
(ii)Rare result for equity
court.
Condition Summary: term that serves as a condition of the obligor’s performance.
-Usually insurance K’s, insured must do things after a claim arises before insurer will pay.
-Cts. want to avoid harsh consequences of conditions; devices to avoid
1. Interprett K to avoid forfeiture (use any ambiguity)
2. Cts. invoke doctrine of waiver
-e.g. forfeiture, obligee
will suffer a reliance loss and obligor will be enriched thereby (Doctorman)
Porter v. Harrington 762
Facts: P had a K w/D to buy land. D says the K was explicitly written so that it could not waive its right to cancel the K. D canceled the K and kept all late payments by P as liquidated dams.
Issue: Does a party’s long term acceptance of untimely payments waive his right to impose a forfeiture for failure to pay on time?
Holding: Yes, affirmed.
(i) Accepting late payments established an order of business.
(ii) Cts vary on whether
they will accept anti-waiver clauses.
Sliwinski 764
(i) Even very late payers
can argue waiver(pushes the edge of the envelope).
Bead Chain Mfg. Co. v. Saxton Products 765
(i) Under UCC, delay in
rejecting late delivery and notifying seller of non-conformity constitutes
waiver of a time-is-of-the-essence clause and obligated acception of
late deliveries.
Fursmidt v. Hotel Abbey Holding Corp 781
Issue: Where the terms of the K require performance to the satisfaction of one of the parties, should the court concern itself with more than the honest judment of the dissatisfied party?
Holding: No, reversed
-don’t have to pay if not fully satisfied
(i) 2 tests to decide whether sufficient performance
1. Reas. person test, objective:use for things with a functional purpose
2. Tastes of customer,
subjective (must be honest”good faith”):use for things involving
taste
Haymore 784
(i) Building K’s generally
fall into a class where “taste, fancy or sensibility” is not of
predominant importance. Therefore use objective standard (operative
fitness, mechanical utility or structural completion)to determine sufficient
performance of condition of satisfaction.
VIII. Policing Contracts
B. Mistake, misrepresentation,
and nondisclosure
Doctines Cts. can use to rescind cases when changed circumstances:
1. Mutual Mistake (Sherwood)
2. Unilateral Mistake/Duty to Disclose
3. Impossibility, Impracticability,
Frustration of circumstances
Which party bears the risk? 4 steps:
1. Does K expressly allocate the risk?
2. Is there a background legal rule allocating the risk?
3. Was the risk foreseeable? (If yes, enforce literal terms of K.)
4. Hard to deal with cases,
no easy answer. Gergen says cts give relief if other party doesn’t
suffer a reliance loss.